Economic Crisis

[Muck]

Now I could start things off by dropping in a provocative and groundless statement about the cause of this all but I don’t want to tangent this from the first post even as a joke.

So lets hear what you guys think then, about the cause, about the solution, what you’ve seen and what you thinks going to happen.

As Zinn said this place could do with some more action.

[HalfSugar]

All I know is that there is a long way to go in the UK before this shit storm bottoms out and there are going to be a lot of job losses and even more of a housing market crash.

Years of irresponsible cheap lending by financial institutions with no forward planning and a service based economy with no self-sufficiency will do this you know.........

I predict exchange rates as at 30 June 2009 will be:

£1 = $1.7
£1 = €1.15

[Muck]

The house thing p*sses me off because I brought a place about 3 years ago so all the appreciation has fallen off and if I hadn’t spent thousands refurbishing it I’d be in negative equity now.

If I’d have known the crash was coming I’d have sat on the money because I could get the same standard of home I have now in a few months time and the tighter loan restrictions would make any difference because I’d have such a substantial deposit.

I’ve heard a lot of people raising concerns that the governments around the world putting money in will just postpone this impact and make it worse. The theory seems to be that we can’t take the hit now maybe we can put if off till late, the theory of dept in itself.

I don’t think there will be a currency shift as you predict Geno because the US, UK and Europe all seem equally f*cked. So think the exchange rates will likely stay but the value will drop,

[HalfSugar]

I'm glad that I have not bought a house yet but that is not entirely through my own decision making, it has been equally situational for various reasons.

I will be well placed when the market bottoms out provided I still have a job to speak of (which I should as an accountant) because every month I don't own a house is another month's worth of additional deposit. Hell if this goes on long enough, I won't need a mortgage

[odlozilik]

The big crash started in the U.S., but US dollar is growing since then (thanks god ). Can someone understand this? How will it go on?
Maybe USA can fix their situation quite easily, because they are biggest (what's 700 000 000 000 $ for them...), but the rest of the world might be shaking for the next 5 years.

[xDiamond_CutteRx]

The US is in a bit more of a fix than it might seem. I doubt we're looking at another Depression era with 1/3 of the country unemployed, but we are in for a serious recession for probably 2-3 years, maybe longer depending on our actions. Probably at least one of the big three US auto makers will go bankrupt by the end of 2009. Home foreclosures will continue. The silver lining is that prices will probably fall a bit, too, especially oil.

To get out, the US credit and banking system will need almost a complete overhaul, the restoration (or introduction) of transparency and accountability to those institutions, and perhaps a fundamental shift in the way Americans think, away from a "we can have everything and never have to pay for it" mentality to one focused on fiscal discipline (I can dream, right?). Regardless of what anyone says, no one person or group is responsible for the crisis. It is a fundamentally systemic flaw, requiring error on the part of home buyers, the government, the financial sector, and especially the banks themselves.

[Muck]

I'm glad that I have not bought a house yet but that is not entirely through my own decision making, it has been equally situational for various reasons.

I’m a little unhappy but my house cost me just under £100K, a closed friend of mine brought a place for over three times that at the height of the housing boom, we’re talking the worst time almost to the month, i.e. before the sh*t storm when the housing market was starting to plateau then decline.

I will be well placed when the market bottoms out provided I still have a job to speak of (which I should as an accountant)

I’m sure financial knowledge will be popular although more so along the lines of, “Can 100% of the tax on my salary be claimed back...plus a salary?â€

[HalfSugar]

DC is right that there needs to be a shift in the way nations think. Giving cheap credit to people with questionable ability to repay can only lead to one thing. As for giving people mortgages with no repayments because the value of their house "will always increase to cover the interest" is utterly mind boggling and US mortgage companies who got into that should be dragged over the coals!

[Muck]

Indeed the banks making those loans to high risk borrowers should have adjusted their interest rates accordingly to offset the risk. But even though they were almost guaranteed to default on those mortgages they didn’t, in fact they seemed to have gone in the completely opposite direction and started sell that bad dept to others as a good investment.

I agree that someone deserves a b*tch slapping for this cataclysmic f**kup Geno, but the argument from the banks is “if you punish us by letting us go down millions of innocent people will sufferâ€

[HalfSugar]

I don't really have a problem with the whole bonus thing. It feels like a fairly fruitless piece of lashing out for the sake of it against a subject which should probably be addressed at some point but is irrelevant to doing anything to fix the current mess we are in. Unless I am missing something of course...........?

[Felting]

What we are seeing is a complete and utter failure of the USA's 25 year love affair with conservative economic policies. The mantra of "Let the market sort it out" has lead to more and more deregulation of all things financial. Thanks to the interconnectedness of the worlds financial systems, the shit storm that began in the USA has quickly spread around the world.

The problem with the theory of leaving the markets to there own devices is that the companies involved in them are ran by people and people are in general greedy. These companies came up with ever increasingly risky ventures in the grab for bigger and bigger profits.

At the same time, we've seen the decline of Unions and stagnation of the purchasing power of the minimum wage. Due to this and globalized free trade we have been seeing a race to the bottom in wages. In order to maintain lifestyle people have increasingly resorted to credit as evidenced in our negative savings rate. This has lead to an highly unbalanced distribution of wealth as the rich got richer and the middle class shrank.

Here's a link that will give details of which I speak concerning wealth distribution.

http://sociology.ucsc.edu/whorulesameri ... ealth.html


How do we fix it.

First is to free up money to get the system moving, that's being done now. Next you have to keep money flowing to those that actually spend it to drive the economy. That means tax cuts for middle and lower income tax payers. Investments in infrastructure such as roads and improving are power grid will also help pump money into the system.

Then once we get the system going we need to get wages up and keep them up. More regulation of all things financial is also needed to keep greed from putting us back into the same situation.

[Felting]

I don't really have a problem with the whole bonus thing. It feels like a fairly fruitless piece of lashing out for the sake of it against a subject which should probably be addressed at some point but is irrelevant to doing anything to fix the current mess we are in. Unless I am missing something of course...........?

Hear's the problem with the bonuses, not to mention CEO's making 500 times the average workers.

They don't spend that money in a way that would drive an increase of the economy. Divide all that up among the workers and they spend it on food, tv's, cars, etc. that cause the economy to grow. What do rich people do? They invest it in pieces of paper that make them more money but doesn't really grow the economy.

[UrAteUp]

If I’d have known the crash was coming I’d have sat on the money

If you had asked me I would have told you to wait Muck. Seriously I was predicting to friends and family well over a year ago that the housing market was going to take a big dip. When the sub-prime loans with adjustable interest rates started looking real great..I knew it had to be too good to last, as all things in life are. All the economic indicators were there to say things were not going to last. That interest rates were going to be heading up and causing problems with these adjustable rate loans.

Also people stopped spending money as freely as when they had been before. Gas and the interest rate hikes were the biggest reason behind the slow down of spending which strangled the economy. Thus the US put out a extra tax rebate to try to get people to spend once more. But they wouldn't have done that if they knew this multi-billion dollar bailout was coming.

what's 700 000 000 000 $ for them..

The US economy can't support $700 billion plus the other $85 billion we already spent to bail out AIG. Check the news to see how after the bailout they enjoyed a day at the Spa plus the big wigs all made sure to get their salary a little ahead of schedule.

Probably at least one of the big three US auto makers will go bankrupt by the end of 2009.

Dodge sold Dahmler-Benz and there is heavy talking of Dodge merging with GMC. Soon there will only be two US auto makers.

Regardless of what anyone says, no one person or group is responsible for the crisis.

DC is pretty much on target with this statement. Several facters in our economic system help support each other. So when one starts to crack or fall so will others. For instance..the banks made bad loans...well really they weren't bad loans. They were shady loans to home buyers. Had they not locked them in with adjustable rate mortgages and instede gave them fixed rate, then most of this problem wouldn't be weighing so heavily on the banks. As any investor knows with risk will often come bigger reward. So they had reason to give adjustable rate loans to people with questionable credit.

Anyhow, if the interest rates hadn't gone up and forced house payments up then forclosures would still be low. However, when they did go up and cause the housing market to fall and the forclosure rates went sky high, the banks were left holding the bag.
This caused some of the large drops on the stock markets. Bonds, investment funds and stocks in these banks all took nose dives.

Who does all this really hurt the most? The middle class American. He/She will be holding the weight of the bailouts in their tax bills. They will be the ones losing retirement money in the stocks, bonds and money market accounts. They will be the ones feeling the burden when they need to get a re-mortgage on their house and can't because bank regulations will force them to have to have stellar credit and more assets then they are trying to borrow for.

[Muck]

I don't really have a problem with the whole bonus thing.

Felting made a good point about this money not benifiting as much as if it went to lower income people, but at the same time yes it isn’t a significant amount in the grand scheme of things and there’s a resentment behind why most people would say they shouldn’t get it.

The failure of senior management in large companies to identify when a person is good or bad at their job is one of the main reasons I quit being a permie and went contracting

If I’d have known the crash was coming I’d have sat on the money

If you had asked me I would have told you to wait Muck. Seriously I was predicting to friends and family well over a year ago that the housing market was going to take a big dip. When the sub-prime loans with adjustable interest rates started looking real great

Well I’m in the UK so there was less of a crash on the horizon. Our house prices have been on a steep climb for many years, everyone new the market was going to slow but in the long term it’s still a solid investment.

Probably at least one of the big three US auto makers will go bankrupt by the end of 2009.

Dodge sold Dahmler-Benz and there is heavy talking of Dodge merging with GMC. Soon there will only be two US auto makers.

Well unless you nuke Japan again there’s not much you can do. I only joke because we have no car industry at all now.

[zinn0]

Well unless you nuke Japan...

Too soon Muck!